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International Trade and Finance

Notes This argument, however, can not be stretched too far because, as we have seen earlier, even the
effects of tariffs on the country’s terms of trade movement are also not very clear-cut.
(e) There are several reasons why domestic producers, importers and even governments, may
prefer quotas to tariffs. From the government’s point of view, quotas are easy to impose, remove,
change and administer. Secondly, international attitude is more permissive on quotas than on
tariffs. Thirdly, high tariff levels necessary to achieve significant import reductions could
seriously damage the public image of the protected industry. For this reason, the domestic
producers may prefer “invisible’ quota protection to the ‘Visible’ tariff protection. Fourthly, as
the total demand for the product grows, a given quota fixed in absolute terms would be more
protective to the domestic producers. A tariff, on the other hand, would not prevent foreign
imports gaining their share of the expanded market in the protected sector of the economy.
Fifthly, it may be argued that quotas allow at least some imports into the country, while tariffs
may be too prohibitive to allow any imports at all. This may have relevance from the standpoint
of consumers of the imported product. Finally, the possibility of capturing good profits from
the quota would be a strong reason for the importers to press for quota method rather than the
tariff method.
In conclusion, both quotas and tariffs provoke retaliation by the rest of the world. Both are anti-trade,
and both tend to reduce economic welfare and allocative efficiency. And it is generally believed that
quotas are more obnoxious than tariffs, because quotas carry additional costs, apart from those that
are carried by the tariffs.
Effectiverate of Protection
Until recently, the degree of protection enjoyed by the domestic industry was thought to be a relatively
simple matter. A ten per cent tariff on a finished imported product was said to give a ten per cent
protection to the domestically produced import-replacement product. The degree of protection was,
thus, measured by the rate of tariff duty imposed on the imported finished product. In the 1960s,
however, a new concept was developed to measure the degree of protection which an industry enjoyed
in a country. This is the concept of effective rate of protection, as opposed to the nominal rate of protection.
The effective protection.
8.3 Definition and Types of Non-Tariff Barriers

Non-tariff barriers to trade (NTBs) are trade barriers that restrict imports but are not in the usual
form of a tariff. Some common examples of NTB’s are anti-dumping measures and countervailing
duties, which, although called non-tariff barriers, have the effect of tariffs once they are enacted.
Their use has risen sharply after the WTO rules led to a very significant reduction in tariff use. Some
non-tariff trade barriers are expressly permitted in very limited circumstances, when they are deemed
necessary to protect health, safety, sanitation, or depletable natural resources. In other forms, they
are criticized as a means to evade free trade rules such as those of the World Trade Organization
(WTO), the European Union (EU), or North American Free Trade Agreement (NAFTA) that restrict
the use of tariffs.
Some of non-tariff barriers are not directly related to foreign economic regulations but nevertheless
have a significant impact on foreign-economic activity and foreign trade between countries. Trade
between countries is referred to trade in goods, services and factors of production. Non-tariff barriers
to trade include import quotas, special licenses, unreasonable standards for the quality of goods,
bureaucratic delays at customs, export restrictions, limiting the activities of state trading, export
subsidies, countervailing duties, technical barriers to trade, sanitary and phyto-sanitary measures,
rules of origin, etc. Sometimes in this list they include macroeconomic measures affecting trade.

Types of Non-Tariff Barriers
There are several different variants of division of non-tariff barriers. Some scholars divide between
internal taxes, administrative barriers, health and sanitary regulations and government procurement
policies. Others divide non-tariff barriers into more categories such as specific limitations on trade,

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